As healthcare costs continue to rise, companies find themselves in the position of having to pass along those costs to their employees and raising premiums year after year. Many are turning to self-funding their insurance plans as a way to contain costs.
Basically in a self-funded (self-insured) plan, the employer takes the risk of paying the healthcare claims. This works in the following manner.
- When the employer deducts health insurance premiums from the employee’s pay, the money is deposited into the company’s health care asset account where the funds accumulate and earn interest.
- When an employee visits the doctor and incurs a medical claim, that claim is sent to the employer (or their third-party administrator) and the claim is paid from the funds in the company’s health care asset account.
Self-funded insurance becomes attractive to employers for several reasons.
- No risk pooling costs associated with fully insured plans
- Monies in the asset account can accrue interest
- Claims are not paid until incurred
- Any surplus left in the assets account is kept by the company, allowing the reduction of premiums and offset costs from year to year based on their claim utilization
- Lower administration costs
- Greater plan design flexibility to meet a company’s needs
Companies should talk to their insurance carrier to see if self-funding may be a viable option to reduce costs associated with healthcare benefits.